It tumbled to a five-week low, with $26 billion wiped from the value of the bourse.

This continued the sour mood from yesterday, when investors fretted over the prospect US and Japanese central banks might in future withdraw their support for the two economies through bond purchases.

The fall today was the fourth straight day of losses, and it was the worst weekly performance on the local market for 12 months.

There was broad-based selling on the day, with the market dropping about 1.6 per cent to finish at its lowest level since April 22.

"A lot of what we have seen over the last couple of days has been due to what we have been seeing offshore rather than anything that's happening in Australia,'' Commonwealth Securities market analyst Steven Daghlian said.

"The slim possibility that stimulus could be pulled back over the next couple of months, even if it is a little, that was more than enough to see markets react to it significantly.''

A weaker Australian dollar also hurt the local market and disappointing Chinese manufacturing data weighed on mining companies.

The rapid pullback among what were in-demand high-yielding stocks, such as big banks and Telstra, gathered pacetoday.

Australia's four largest retail banks dropped between 1 and 2 per cent - ANZ slumped 45cs to $27.68, Commonwealth Bank was off 94c at $68.77, National Australia Bank backpedalled 4c to $31.29 and Westpac was 60c lower at $29.32.

Telstra was down 8c at $4.87.

Among the major miners, BHP Billiton declined 52 cents to $34.36 and Rio Tinto was 59c lower at $54.51.

The one shining light was the gold sector, which rose 3.39 per cent as a firmer US dollar boosted the price of gold.